Wednesday, December 31, 2008

It's new years eve. Being a self-employed person I have learned I have an incredibly understanding boss who is giving me the rest of the week off (actually, practically the whole world is treating this week as a vacation week). To that end, I am signing off until next Monday -- the first full trading week of the year.

Below is a picture of three dogs. You may not be able to see them, but they are there. On cold nights, Mr$s. Bonddad and I cover the pups with a blanket because, well, we're dog nuts.

So have a happy -- and safe -- holiday and I will see everybody bright and early on Monday morning.

Home prices in 20 U.S. cities declined at the fastest rate on record, depressed by mounting foreclosures and slumping sales.

The S&P/Case-Shiller index declined 18 percent in the 12 months to October, more than forecast, after dropping 17.4 percent in September. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.

The financial market meltdown that’s reverberated around the globe has prompted banks to curb lending, signaling the housing slump will persist for a fourth year in 2009. Falling property values have eroded household wealth, causing consumers to pare spending and deepening what is projected to be the longest recession in the postwar period.

“As 2008 comes to an end, the housing market is left in a weaker state than at the beginning of the year,” Michelle Meyer, an economist at Barclays Capital Inc. in New York, said before the report. “Uncertainty remains high given the unprecedented nature of the recession.”

The central issue with the housing market now is price. As long as we see these massive drops in home prices we can say supply and demand are way out of sync.

One of my central ideas of the current downturn is employment will experience about 6-9 months of terrible news and then get better -- or at least be less bad than before. There are several reasons for this theory:

1.) The worse rate of job losses over the last 60 years occurred in a recession in the 1950s when the economy lost 50% of the jobs it created in the previous expansion.

2.) Over the last few months we have seen an acceleration of job losses. I think what is happening is companies are "ripping the bank-aid off" -- getting the pain out at the end of a terrible year. Essentially, management is sitting in a board room and saying, "this year already sucks, let's just get the pain over with."

Here is something else to consider. Starting with the expansion of the 1980s the total number of establishment jobs created has decreased with each expansion. In other words, the expansion of the 1990s created fewer jobs than the expansion of the 198os and the expansion of the 2000s created fewer jobs than the expansion of the 1990s. I think what is happening is companies have learned to cope with less -- that it, they have continually whittled down their employment needs, hiring people only when absolutely necessary. A big boost to this theory is the mammoth increase in productivity we've seen over the same time, largely as a result of technology. People can simply do a whole lot more work; companies don't need armies of employees to perform a host of jobs. All this means that each person companies hire are that much more valuable to the company, making lay-offs that much harder. So when we do have lay-offs, times are really bad.

If both of these are true we have at most 6 months left of horrible employment/job market related news to go through.

However, the economy likes to make an ass out of economists whenever possible. So let's argue the contrary position.

The official jobless rate climbed to a 15-year high of 6.7% in November from 4.7% a year earlier. But that doesn't include people who have given up looking for work or those forced to work fewer hours as business conditions soured.

By adding underemployed and disaffected workers to the total, the so-called alternative unemployment rate stood at 12.5% in November, the highest since the Labor Department began tracking the series in January 1994. That's up from 11.8% in October and 8.4% a year earlier.

"We have obviously seen a very rapid deterioration in the employment situation," said Sophia Koropeckyj, an economist at Moody's Economy.com. "There are fewer people working and the people who are working are working fewer hours."

She said the alternative jobless rate could eventually hit 15%. The U.S. will release its December employment report on Jan. 9.

"Our expectation is that the recession could go on for another year and the unemployment rate will not reach a peak until 2010," she said.

Here is the accompanying graphic:

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There are several indicators from the BLS that confirm the difficulty in the labor market. Here is a chart of the number of people who are working part-time for economic reasons:

Over the month, the number of persons who worked part time for economic reasons (sometimes referred to as involuntary part-time workers) continued to increase, reaching 7.3 million. The number of such workers rose by 2.8 million over the past 12 months. This category includes persons who would like to work full time but were working part time because their hours had been cut back or because they were unable to find full-time jobs.

This number has been climbing sharply over the last year and is looking to get worse. This number tells us the jobs just aren't out there.

Here is a chart of people who aren't in the labor force although they searched for work and are available to work:

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Again - this number is spiking and is near its highest level in 15 years.

And the length of time people are unemployed is increasing. Here is a chart for the number of people who were unemployed for 5-14 weeks:

Here is a chart for people who were unemployed for 15 weeks and longer:

And here is the chart for people who are unemployed for 27 weeks and longer:

All three of the above charts are near multi0decade highs.

So, on my side I have history and a theory about employment trends in my lifetime. The graphs above indicate times are already bad and could get worse.

Let's start with the long end of the curve. From September through December, the TLTs were trading in a slightly compressing triangle. Then they went parabolic, rising from 98 to 120 -- a gain of 22.44%. That type of gain is literally unheard of in the fixed income world and indicates the Treasury market is in a bubble.

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The IEF (7-10 years) also rose through important technical resistance right around the 92.50 level and is now 7.5% above the high points of its 9 month trading range.

With both of these charts, notice the extremely sharp increase in prices that's happening right now; these are large jumps for a fixed income security. Also note the SMAs -- they are all sharply up indicating traders are bidding these securities up sharply.

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On the short end of the curve, first notice the rise since the end of June. The rally has been strong and continuous.

On the three month chart notice the following:

-- Prices used the 10 and 20 day SMAs as technical support for the last three months. Now prices have moved below that level.

-- The 10 day SMA is about to cross below the 20 day SMA

These are all initial moves, and could easily be reversed with a week or so on contrary action, so don't bet the farm on these moves. However, they do indicate times might be gearing up for a change.

More than a dozen retailers, including Circuit City Stores Inc., Linens ‘n Things Inc., Sharper Image Corp. and Steve & Barry’s LLC, have sought bankruptcy protection this year as the credit squeeze and recession drained sales. Investors will start seeing a wide variety of chains seeking bankruptcy protection in February when they file financial reports, said Burt Flickinger.

“You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out,” Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York, said today in a Bloomberg Radio interview. “There are a number that are real causes for concern.”

Price-slashing failed to rescue a bleak holiday season for beleaguered retailers, as sales plunged across most categories on shrinking consumer spending. Total retail sales, excluding automobiles, fell over the year-earlier period by 5.5% in November and 8% in December through Christmas Eve, according to MasterCard Inc.’s SpendingPulse unit. WSJ

Customer visits to U.S. retailers fell 24 percent last weekend compared with a year earlier, the biggest drop on record, as deepened discounts failed to attract consumers. Foot traffic was hurt by the economy, unfavorable weather and a calendar shift, research firm ShopperTrak RCT Corp. said.

Barron's ran a story on the retailers a few weeks ago. Here are some snippets from the article:

Among cash-rich retailers, Nike and Coach look especially attractive. They sport moderate price/earnings multiples, have little debt and are expected to report higher earnings in fiscal 2009. Bob Drbul, a retail analyst at Barclays Capital, has an Overweight rating on both, and notes that "retailers become more dependent on established brands" in uncertain times.

.....

The equity markets already have sniffed out retailers that could have big problems in coming quarters. Bon-Ton Stores , a regional department-store chain, trades for 1.16 a share, down from a high of 57 in March 2007. Talbots , a women's apparel chain, fetches 2.30; Dillard's , 3.78, and Charming Shoppes , another women's-wear retailer, 2.88. All are expected to report losses this year, and have borrowed heavily relative to their operating performance. Bottom fishing among these stocks looks unwise for now.

.....

THE NATION'S LARGER department stores also face a tough 2009, but they are in better financial shape. J.C. Penney , the mall-based retailer, has $3.5 billion of debt but $1.6 billion of cash. It should have little trouble funding its first debt maturity of $506 million in 2010, and a subsequent payment of $230 million in 2012. Kohl's has a similar customer base and a strong balance sheet. But its shares are cheaper, at 13.9 times 2009 earnings estimates, than Penney's, at 15.1.

You'd think I'd get tired of writing that headline. But not with the current information we have on the market. Let's start with the charts (courtesy of Calculated Risk)

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Sales were pretty even for most of 2008. But they dropped big time last month. Some of that might be end of the year backing away -- no one wants to buy a house in December unless they absolutely have to. But it's also important to remember there has been no good news for awhile now. The US is formally in a recession; the financial sector is tightening credit standards. The stock market is down 40% for the year. It's a pretty bleak time.

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Notice total homes available for sale has fluctuated between 4 and 4.5 million for the last year and a half. In other words -- we haven't made a dent in the homes on the market. There are several reasons for this. Sales were dropping for most of 2007, letting inventory build. While sales evened out in 2008 they did so at a much slower pace than 2007, thereby allowing inventory to continue to build. Then you have a rash of foreclosures adding to inventory for 2008 in addition to a credit crunch which is restricting borrowers. Bottom line: this is not an environment where inventory gets cleared.

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The months of inventory available has been floating around 9.5 to 11 months for the last year and a half. Simply put -- inventory isn't moving.

As the ads say, "more than just a privileged few" can call the brand-new Opera Tower home.

Thanks to the tattered housing market, renters are welcome at this marbled luxury condo soaring over Biscayne Bay — billed as the "jewel of Miami's Cultural District."

.....

Lease-to-own programs are also cropping up in other places such as New York — specifically, in some overbuilt parts of Brooklyn.

Homebuilder Toll Bros. (TOL) is pushing rent-to-own units in its new luxury condo tower on the Brooklyn waterfront in the borough's trendy Williamsburg section, an area with a glut of new projects.

.....

In economically hard-hit Lansing, Mich., the Gillespie Group recently offered several lease-to-own units in a new condo it built in the Stadium District.

"In mid-September we seemed to have just hit a wall as far as customers' desire (or ability) to close or buy," said President Pat Gillespie.

But just one person has signed a contract. So Gillespie plans to push straight rentals after the holidays.

Indeed, pure rentals seem to be trumping rent-to-own deals.

"People think prices are going to continue dropping so they're renting and waiting out the market," said Steve Anderson, an agent with Carson Realty Group in Miami Beach.

People are getting smart and builders are getting desperate. Builders are treading water, trying to hold-on the best they can through one of the worst markets in generations. Buyers are getting hip, realizing they can wait for awhile longer before they commit.

Like last week, this week is a short week. There is new years eve on Wednesday and New Year's day on Thursday, meaning Friday is all but gone as well.

Let's start the week with a few charts:

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The really big dip at the end of November (when prices dropped to the 74-76 range) really crimps the read of this chart. Without that dip I would call this a consolidation triangle. However even with that we have a declining trend line at the top of the formation and a declining average volume count at the bottom.

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On this chart, simply notice the rally that started in late November is over.

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On this chart, notice there is a lot of technical support in the 82-84 area.

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Let's look at the SMA picture

-- Notice the 10, 20 and 50 day SMAs are all bunched up. This indicates a lack of conviction from either the bulls or the bears.

Tuesday, December 23, 2008

Tomorrow is Christmas Eve. I and Mr$. Bonddad have a ton of work to do before we have our first Christmas dinner with family at our house. Daddy Bonddad is in town along with a lot of other family. Needless to say, my list of honey do's is long. To that end, I am going to sign off the blog until next Monday. On behalf of me, Mr$. Bonndad and our our extended family I want to wish all the readers of this blog a Merry Christmas.

Today's investors, too, are surveying a stock-market collapse and a wave of Wall Street failures and scandals. Many have headed for the exits: Investors pulled a record $72 billion from stock funds overall in October alone, according to the Investment Company Institute, a mutual-fund trade group. While more recent figures aren't available, mutual-fund companies say withdrawals have remained heavy.

If history is any guide, they may not return quickly.

......

Individual investors arguably form the bedrock of the market. It's difficult to pinpoint how much stock they hold, because they own shares through mutual funds, retirement accounts and other vehicles. But once retirement accounts are factored in, individuals likely account for half or more of all U.S. stock holdings, according to data from Birinyi Associates in Westport, Conn.

Investors' discomfort with stocks has been growing for years, since just after the 2000 selloff of dotcom shares. From 2002 through 2005, investors put an average of $62 billion a year into U.S. stock mutual funds, less than half the annual level of the previous decade. Since 2006, investors have been pulling money out of U.S. stock funds at a rate of about $40 billion a year.

Such skittishness already promises to put a brake on the stock market's recovery, which could make it harder for companies to raise capital and could squeeze financial firms' profits. That, in turn, could delay the economy's emergence from the severe recession that began last year.

This is a prime reason why the Madoff scandal is so debilitating -- it completely kills confidence in the market.

Above is a video from this week's Barron's. Essentially, people are seeing a modest recovery but nothing to write home about. The Fed printing money and the mammoth spending plan coming in will help but the economy is facing incredibly strong headwinds. That being said, consider the following charts of the NYSE and NASDAQ advance/decline and new highs/new lows line with the charts listed below.

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With all of these charts, notice the new highs/new lows line is decreasing at a far lower rate and the advance decline line has rebounded somewhat.

Let's take a look at a few charts to get the ball rolling. I'm going to start with the IWMs. This is the ETF tracking stock for the Russell 2000. Because this index deals with smaller cap stocks it's a good proxy for risk capital.

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Notice the following on the three month chart:

-- The market has been rallying since the end of November

-- Prices have broken through upside resistance from the upper downward sloping trend line

-- Prices are above the 50 day SMA

-- The 10 and 20 day SMA are moving higher

-- The 10 day SMA is above the 20 day SMA

-- Volume has been steady

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Notice the following on the QQQQs:

-- The market has been rallying since the end of November

-- Volume has been dropping for the duration of the rally

-- Prices have broken through upside resistance from the upper downward sloping trend line

-- Prices have formed a triangle consolidation pattern over the last week or so

-- Prices are right below the 50 day SMA

-- The 10 and 20 day SMA are moving higher

-- The 10 day SMA is above the 20 day SMA

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Notice the following on the three month SPY chart:

-- The market has been rallying since late November

-- Volume has been decreasing for the duration of the rally

-- Prices can't quite get over the upper line of the downward sloping channel

-- The 10 day SMA is above the 20 day SMA

-- The 10 day SMA recently turning down but the general trend is still up

-- The 10, 20, and 50 day SMA are jammed into a small price area

Bottom line: the situation with the Russell 2000 is very positive. That index has been rising on good volume and has broken through key upside resistance. All of these factors indicate early risk capital is getting in. The QQQQs are also in good technical shape save the declining volume over the last rally. However, this could also be a sign of people not wanting to over-commit to a possible rally. The SPYs suffer from two problems: they haven't broken above hey upside levels yet and they have declining volume. Again -- this could be because people want to participate but not too much or there is leglitamte concern.

Still, the positives outweight the negatives on these combined charts. The markets look poised for some early year gains.

Recently the Minneapolis Federal Reserve Issued a Paper titled, "Facts and Myths About the Financial Crisis of 2008." In the introduction the paper states, "Here we examine four claims about the way the financial crisis affected the economy as a whole and argue that all four are myths." In doing so, they use aggregate data. In response, the Boston Federal Reserve wrote a paper titled, "Looking Behind the Aggregates: A Reply to Facts and Myths About the Financial Crisis of 2008." In this paper the authors argue that when an analysis is made of the underlying data for the aggregate data used in the first paper, "Out findings show that most of the commonly argued facts are indeed supported by aggregated data." So - who is right?

Information contained within the Minneapolis Fed's report casts doubts on the claims they make. First, they rely on the fact that there has been no decrease in lending. They look at total bank credit outstanding, total loans and leases, total commercial and industrial loans, and total consumer loans and conclude "we see no evidence of any decline during the financial crisis." Before we take their conclusions as golden, let's consider the economic landscape of the last year. According to the NBER the US was in a recession which started in December 2007 - a year ago. In other words, it should not be surprising there was not an increase in lending. In fact, a careful reading of each Beige Book from the last year along with a reading of the Federal Reserve's survey of senior loan officers indicates a drop in loan demand along with a tightening of lending standards throughout the year.

More importantly, let's look at total US credit outstanding going back to the early 1970s.

What does this chart tell us? There are two important facts.

1.) The latest recession is the only recession where total credit outstanding has leveled off for an extended period. (The first recession in the 1980s saw a contraction but only after total credit increased). While it didn't decrease it also didn't increase. Compare this to the previous 6 recessions when lending increased at least slightly throughout the recession. In other words, the leveling off of credit creation is a story in and of itself.

2.) In order for the US economy to grow it must have a continual supply of new credit. A leveling off is just as hazardous as a decline.

And that is what happened during most of 2008. The graphs contained within the Minneapolis Federal Reserve report show a clear leveling off of total outstanding credit for most of 2008. Again - this is the only recession in the last 40 years where this has happened.

Secondly, the Minneapolis Fed relies on the spread of various bonds to the Treasury curve. This will take several steps to explain.

Step 2: The yield on various bonds and assets are compared to the Treasury curve to measure "risk". People assume that US Treasury Bonds are the safest investments in the world. Therefore, comparing the interest rate on various assets to the comparable Treasury (the Treasury with the same maturity) will tell us how risky that asset is.

Step 3: Inflation eats away at fixed income investments. As a result, when investors think inflation will decrease they are more likely to buy Treasury bonds because there is less chance the income received will fall because of higher inflation.

Here's an example. Suppose a 10 year Treasury bond was yielding 5% and a 10 year corporate bond was yielding 7%. The "spread" would be 2% or 200 basis points. This is the difference between the yield on the Treasury bond and the corporate bond. Suppose another corporate bond was yielding 8%. This spread would by 3% or 300 basis points. These facts tell us the market things the second corporate bond is riskier because it yields more than the comparable Treasury and a corporate bond with the same maturity.

Let's take all of this and apply it to the Minneapolis Fed's report. They notice that

While the rationale [for using spread analysis] may be compelling in normal times, we think that a focus on spreads can lead to misleading inferences during financial crises. Financial crises are often accompanied by a flight to quality during which the real return to Treasury securities falls dramatically, that is, the nominal return falls dramatically for reasons other than changes in expected inflation.

Over the last few months we've seen a huge rally in Treasuries. In fact, some people have argued the Treasury market is in a bubble. As a result, the yield on Treasuries is really low. But this is not caused by inflation expectations; that is, people are not buying Treasuries because they think inflation is low. They are buying Treasuries because they are concerned about investment safety.

What the Minneapolis Fed report fails to take into account is inflation in one reason for invetors to purchase Treasury bonds. Another is safety. Because US Treasury bonds are considered the safest in the world people are buying them at a high rate meaning Treasuries are yielding an incredibly low rate right now. Some T-Bills have recently been issued at 0% interest! That in and of itself tells us the level of concern is abnormally high and a credit crunch is indeed going on - people don't' want any return; they simply want their money bank!

In short, inflation expectations are one reason why people buy Treasury bonds. But another very important reason is safety. And investors are clearly concerned mostly with safety right now if they don't even want a return on their investment.

The Bank of Boston adds other extremely credible explanations for the lack of decline in lending. They note that in a credit crunch companies rely more on their existing lines of credit as other sources of funds (the stock market, commercial paper and new lines of credit) dry up. In addition, banks are unable to securitize loans in the current environment and are therefore forced to keep more loans on their books, thereby increasing lending. The paper also shows that lower grade corporate issuers (single A) have seriously cut back on their commercial paper issuance, indicating that only the very best credit quality issuers are able to obtain short-term funding in the commercial paper market.

From a personal level -- and purely anecdotal -- I work with several business brokers in the Houston area. Over the last 6 months when we have seen is a tightening of credit which has caused an increasing number of deals to fall through.

The point of all this is simple: the facts within the Minneapolis Fed's paper directly contradict the Fed's conclusions. In addition, the Boston Fed's paper adds more credible evidence that a credit crunch is indeed ongoing. I would add that a thorough review of the anecdotal evidence in the Federal Reserve's Beige Book and Senior Loan Survey shows lending standards have been tightening for a year and loan demand has been dropping.

But more to the point: why is this debate occurring? What are we talking about whether or nor there is a credit crunch? There are two reasons.

First, the Treasury has mishandled the TARP from the very beginning. First Paulson wanted unfettered power to do whatever he wanted to with the funds without and Congressional or judicial review. Then he came up with the $700 billion number out of thin air. Next he wanted to buy troubled assets only to change his mind to injecting money directly into the banks. And then the GAO released a report stating there was no oversight of any of this. Simply put, the program's creation, implementation and supervision are all a disaster.

Secondly, there is a very strong anti-Wall Street mood right now. Some of this is deserved. We got into this mess because Wall Street wanted deregulation only to act poorly when there were no rules. However, not everyone who works on Wall Street is a relative of Satan. And simply because you are involved with investment banking or investments in general does not mean you are evil. I know several brokers who have offered their clients excellent advice over the last year - advice which has lead to lower commissions for them. And they are not alone. The point is painting any group of people with a broad brush is a bad idea.

* "The only positive thing of late is that the U.S. dollar has strengthened significantly against other currencies. We import the majority of our materials so this will have the effect of lowering our COGS." (Transportation Equipment)* "Steel industry is our main customer, and they have had a real slowdown." (Computer & Electronic Products)* "Criteria for projects is significantly higher with very short ROI periods." (Food, Beverage & Tobacco Products)* "We have revised downward our top-line sales estimates for CY2009 by 8 percent due to the continued softness we see in the housing sector." (Machinery)* "Suppliers are trying to hold onto pricing, but petrochemical and commodity prices are dropping like a rock." (Plastics & Rubber Products)

The contraction underway in the manufacturing sector is of historic proportions, the results of November's ISM manufacturing report that shows a headline index of 36.2, down nearly 3 points in the month. The reading is the lowest since 1980 recession. Key components in the survey show greater weakness than the headline index including a 31.5 level for the production index that matches the record low in May 1980. New orders at 27.9 is at its lowest since the early 80s while, in perhaps the most stunning reading of all, prices paid is at 25.5, down 11.5 points in the month for the lowest reading since early data in 1949 -- a critical indication that demand is falling and falling very sharply.

Notice that only two industries expanded whereas 16 contracted. Sales reports are being downgraded and the criteria for projects is increasing. Simply put -- things are bad. Also note we are at lows not seen since the 1980s. That is not a comparison anyone wants to make.

Industrial production decreased 0.6 percent in November with declines widespread across industries. The drop in output in September was revised down, and the rebound in October was revised up, in large part because both the decrease due to the September hurricanes and the subsequent partial recovery in October were larger than previously reported.

Manufacturing production dropped 1.4 percent in November despite the resumption of activity in the commercial aircraft industry after the resolution of a strike early in the month. The output of mines advanced 2.5 percent, primarily as a result of a further post-hurricane recovery in crude oil and natural gas operations in the Gulf of Mexico. Taken together, the rebounds after the strike and the hurricanes added almost 1 percentage point to the change in industrial production. The output of utilities rose 1.6 percent.

At 106.1 percent of its 2002 average, total industrial production in November was 5.5 percent below its level of a year earlier. The capacity utilization rate for total industry fell to 75.4 percent, a level 5.6 percentage points below its average level from 1972 to 2007.

Here are the relevant graphs:

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The year over year number is a big concern. Also note that capacity utilization is leveling at a lower level than the level we've had for the last few years. The bottom line is we're slowing down.

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers deteriorated significantly in December. The general business conditions index, at -25.8, held near the record low set in November. The new orders and shipments indexes also remained near their recent record lows, and the unfilled orders index dropped to a new low. The indexes for prices paid and prices received fell below zero, and employment indexes remained deep in negative territory. Future indexes remained subdued, with the capital spending and technology spending indexes remaining well below zero.

The graph shows the severity of the slowdown:

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Again -- this is a significant decline which happened quickly. In indicates the slowdown is extreme, sharp and very sudden.

Conditions in the region's manufacturing sector continued to deteriorate this month, according to firms polled for the December Business Outlook Survey. All of the survey's broad indicators remained negative this month and at relatively low levels. Firms reported declines in input prices and the prices for their own manufactured goods this month. Consistent with the weakness in current activity, most of the survey's indicators of future activity slid further into negative territory, suggesting that the region's manufacturing executives expect continued declines over the next six months.

Here is the relevant graph:

There is no good news in any of these releases. Simply put, manufacturing is in terrible shape.

I am a total economics geek. I make bets on what the inflation rate will be at year end.

I bet New Deal Democrat over at the Economic Populist that the US inflation rate for the US would be higher in 2008 than 2007. While there is still one month left I feel confident in saying that December will not see a massive jump in inflation. As a result, I have donated $50 to Baghdad Pups.

BTW -- this is an entirely worthy charity run by the SPCA to help service men and women bring home animals they have befriended in Iraq. Being a big dog lover this is right up my alley.

-- Prices have been bouncing from the 20 day SMA for the last three months

BUT

-- The MACD has been increasing for the last few months.

Bottom line: The market is technically oversold right now. But there are no fundamental events strong enough to move the market higher. Consider the following:

Since September, members of the Organization of the Petroleum Exporting Countries have pledged cuts totaling 4.2 million barrels a day, or nearly 12 percent of their capacity, a record in such a short time.

The bottom line is a lot of capacity is going off line (at least theoretically). If a 10% cut in production isn't strong enough to move prices higher, then it's going to take a lot more. My guess is from here oil will try and form a bottom to rally from.

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